Boyd Group Services Inc.

Good morning, everyone. Welcome to the Boyd Group Services Incorporated third quarter 2022 results conference call. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to risks and uncertainties related to Boyd's future financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements. The risk factors that may affect results are detailed in Boyd's annual information form and other periodic filings and registration statements. And you can access these documents at CDER's Database found at SEDAR.com. That's S-E-D-A-R.com. I'd like to remind everyone that this conference call is being recorded today, Wednesday, November 9th, 2022. I would now like to introduce Mr. Tim O'Day, President and Chief Executive Officer of Boyd Group Services Incorporated. Please go ahead, Mr. Day.

Thank you, Operator. Good morning, everyone, and thank you for joining us for today's call. On the call with me today is Pat Pappapatti, our Executive Vice President and Chief Financial Officer. We released our third quarter results before markets opened today. You can access our news release as well as our complete financial statements and management discussion and analysis on our website at BoydGroup.com, and our news release, financial statements, and MD&A have also been filed on CDAR this morning. On today's call, we will discuss the financial results for the three and nine month period ended September 30th and provide a general business update. We'll then open the call for questions. During the third quarter of 2022, we delivered record sales and adjusted EBITDA for the second quarter in a row, despite the negative impact of Hurricane Ian near the end of the quarter. Results were primarily supported by strong same-store sales growth in both Canada and the U.S., as well as contributions from new location growth. Demand for Void services continued to substantially exceed capacity in all U.S. markets, while Canadian markets continued to experience recovery of demand as conditions continued to normalize. While the ability to service demand continues to be constrained by market conditions, New Technician Training, and other initiatives are providing some improved capacity. However, the path to achieving historical levels of performance continues to require additional labor capacity, pricing increases, and further easing of supply chain pressure. Over time, the improvement in these conditions will result in reduced levels of work in process and improved absorption of fixed costs. During the third quarter, we recorded record sales of 625.7 million, adjusted EBITDA of 73.0 million, and net earnings of 11.9 million. Sales were 625.7 million, a 27.6% increase when compared to the same period of 2021. This reflects a $35.4 million contribution from 84 new locations. Our same-store sales excluding foreign currency exchange, increased by 21.9% in the third quarter, recognizing the same number of selling and production days in both the U.S. and Canada when compared to the same period of 2021. Sales benefited from pricing increases and high levels of demand for services, as well as some increase in production capacity related to technician hiring and growth in our technician development program. although ongoing staffing constraints and supply chain disruption continue to impact sales levels that could be achieved during the third quarter of 2022. Sales also increased based on higher repair costs due to increasing vehicle complexity, increased scanning and calibration services, as well as general market inflation. Same-store sales in Canada continue to recover, albeit from low comparatives during the third quarter, but this recovery has continued to be impacted by supply chain disruption. Gross margin was 45.1% in the third quarter of 2022 compared to 44% achieved in the same period of 2021. The gross margin percentage benefited from pricing increases including performance-based credit relief to address the constraints caused by current market conditions and higher retail glass sales margins as well as improved part margins. These benefits were partially offset by reduced labor margins, as well as a higher mix of parts sales in relation to labor. While pricing increases continued to flow through the results in the third quarter of 2022, labor margins were negatively impacted by the extraordinarily tight labor market, which continued to result in increased wage costs to both retain and recruit staff. Increasing vehicle complexity also resulted in a higher mix of parts sales Operating expenses for the third quarter of 2022 were $209.3 million, or 33.4% of sales, compared to $164.2 million, or 33.5% of sales, in the same period of 2021. Operating expenses as a percentage of sales benefited from sales increases, which provided improved leveraging of certain operating costs. This was partially offset by wage and other inflationary increases, as well as increased costs to support related recruitment and training, and to support costs related to the expansion of the WAO operating way practices to corporate business processes. Adjusted EBITDA, or EBITDA adjusted for fair value adjustments to financial instruments and costs related to acquisitions and transactions, was 73.0 million, a 41.8% increase over the same period of 2021. The increase was primarily the result of improved sales levels, which also provided improved leveraging of certain operating costs. Adjusted EBITDA for the period was constrained by technician capacity due to the tight labor market, as well as some minor impact due to Hurricane Ian. Market conditions, including wage pressure, a tight labor market, and Supply Chain Disruption are impacting the results that can be achieved in the near term. Net earnings for the third quarter of 2022 was $11.9 million compared to $0.4 million in the same period of 2021. Excluding fair value adjustments and acquisition and transaction costs, adjusted net earnings for the third quarter was $12.1 million or $0.56 per share compared to $2.4 million or 11 cents per share in the same period of the prior year. The increase in adjusted net earnings per share was positively impacted by increased sales and an improved gross margin percentage. Net earnings was negatively impacted by the recording of adjustments related to completion and filing of the prior year US tax returns, which increased income tax expense by approximately 2.0 million during the third quarter of 2022. At December 31, 2021, Boyd recorded approximately $7.6 million in income taxes recoverable. As returns were finalized and filed, this amount was reduced by approximately $2 million, primarily due to certain state and franchise tax payments. For the nine-month period ended September 30, 2022, sales totaled $1.8 billion an increase of $438.8 million or 32.3% when compared to the same period of the prior year driven by same store sales growth of 19.5% as well as contributions from new locations that had not been in operation for the full comparative period. Gross margin decreased to 44.9% compared to 45.3% in the comparative period. The prior period included the recognition of SUEs of approximately $3.2 million. The gross margin percentage was negatively impacted by reduced parts and labor margins, as well as a higher mix of parts in relation to labor. During the first nine months of 2022, Boyd faced supply chain disruptions, which resulted in a negative impact on margins. While pricing increases flowed through the results in the first, second, and third quarters of 2022, labor margins were negatively impacted by the extraordinarily tight labor market, which continued to result in increased wage costs to both retain and recruit staff. The shortage of labor also resulted in a higher mix of part sales in relation to labor. The nine months ended September 30, 2022, benefited from performance-based credit relief to address the constraints caused by current market conditions. Operating expenses increased to $153.9 million when compared to the same period of the prior year, primarily due to increased sales based on same-store sales growth as well as location growth. The prior period included the recognition of SUEs of approximately $4.3 million. Operating expenses were negatively impacted by the extraordinarily tight labor market which resulted in increased wage and benefit costs to both retain and recruit staff. Also impacting the first nine months of 2022 were increased support costs related to recruitment and training, including costs associated with the Technician Development Program, as well as support costs related to the expansion of the WOW operating way practices to corporate business processes. Adjusted EBITDA for the nine-month period ended September 30, 2022 was $198.8 million compared to $162.2 million in the same period of the prior year. The prior period included recognition of SUEs of approximately $7.5 million. The $36.6 million increase was positively impacted by improved sales levels which also provided improved leveraging of certain operating costs. We reported net earnings of $26.8 million compared to $18.6 million in the same period of the prior year. Adjusted net earnings per share increased from $1.03 to $1.29. The increase in adjusted net earnings per share is primarily attributable to increased sales partially offset by a lower gross market percentage and higher levels of operating expenses. At the end of the period, we had total debt, net of cash, of $940.8 million compared to $973.7 million at June 30, 2022. Debt, net of cash, decreased when compared to prior periods primarily as a result of higher earnings, changes in working capital balances, and lower levels of acquisition activity. During 2022, the company expects to make cash capital expenditures within the previously guided range of 1.6% of sales. This excludes those capital expenditures related to acquisition and development of new locations. Entering the fourth quarter, Boyd continues to experience strong demand for services. However, technician capacity as well as the impact of inflation on costs and ongoing wage pressure continue to impact the results that can be achieved. Boyd continues to negotiate and receive price increases which are necessary in order to support the attraction of talent to the industry and the retention of the current talent pool. Boyd continues to make progress, but further increases are needed to address ongoing wage pressure. During recent quarters, Boyd has benefited from performance-based credit relief put into place to address the constraints caused by the current market conditions, which continue to impact the business. Although it is early in the quarter, Boyd is experiencing same-store sales growth that is modestly below that experienced during the first nine months of the year. The pipeline to add new locations in existing markets and to expand into new markets is robust. Workforce initiatives such as the Technician Development Program are having some impact and ongoing investments in technology, equipment, and training position the company well for continued operational execution. Boyd remains committed to addressing the labor market challenges through initiatives such as the Technician Development Program, which we have doubled in size since the beginning of 2022. We now have approximately 400 apprentices in this program as of early November. In addition to addressing the labor shortage for the core business, Boyd plans to increase location growth during 2023 in relation to 2022. Boyd is focused on optimizing performance of new locations as well as scanning and calibration and consistent execution of the WOW operating way. Given the high level of location growth in 2021, Combined with this strong same-store sales growth thus far in 2022, Boyd remains confident that we are on track to achieve our long-term goals, including doubling the size of the business on a constant currency basis from 2021 to 2025 against 2019 sales of US $1.7 billion. Before we open the call to questions, as this is Pat's last quarterly conference call as Executive Vice President and CFO. I'd like to personally thank him for the important role he has played in Boyd Group's growth and success since joining us in 2015. While we have every confidence that the company will continue to execute against a solid business strategy supported by excellent long-tenured leadership, Pat's contributions have been appreciated throughout his time at Boyd and he will certainly be missed when he retires. At this time, the previously announced search to succeed Mr. Peppetti in the role of Executive Vice President and Chief Financial Officer is proceeding along planned timelines and will be announced upon its conclusion. At this time, I'd like to turn the call over to Pat to comment on his upcoming retirement. Pat?

Thanks, Jim. I want to thank the outstanding team at Boyd that I've had the privilege of working with during my eight years as Executive Vice President and CFO. I would also like to personally thank all of you, our shareholders, research analysts, bankers, advisors, and other participants in VoIP's capital market activities for the support, advice, trust, and confidence in our business. You've been wonderful to work with, and this has certainly made my job as CFO enjoyable. It has been a great ride through my eight years at Boyd, and I believe the company is very well positioned for continued success. So with that, I would like to open the call to questions. Operator?

Thank you. If you would like to ask a question, please signal by pressing star 1 on your telephone keypad. If you are using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll take our first question from the line of Michael Dume with Scotia Bank.

Good morning, Michael.

Good morning, Michael.

Good morning, guys. I was just, first question, I guess, on the margins. As we think about the balance of the margin normalization, any way you can discuss what you think are the most I wouldn't expect TDP to necessarily drive margin improvement, but it will increase our capacity and throughput.

and help absorb our fixed operating costs. So that's really more to drive additional same store sales growth. And we are seeing signs of that now that we're very pleased with. I think to recover margin back to normal levels will require really probably three things. One is, and this is probably the least impactful, but the normalization of the supply chain will help our margins and be a part of the solution. and we reported last quarter that we were seeing early signs of that but there's still lots of room for that to recover. More importantly, we need to continue to get price from insurance clients both to recover labor margins but also to cover continuing cost increases and get margins back to normal. We have been very successful with that. I think I'm pleased with the progress we've made and I expect that we'll continue to make progress on that front.

Yeah, one additional factor, Michael, is in terms of the production capacity. As our production capacity exceeds, so we'll have an opportunity to enhance the mix from replace to repair, and margins on labor are substantially higher than the past margins. So to that extent, we can improve the gross margins by managing the mix. And that's tied to our production capacity.

Perfect. That's really helpful. and then you commented that you were receiving performance-based credit relief due to market conditions. Do you still expect those as far as market conditions remain constrained? And I guess I'm also asking for clarity on whether the potential removal of that can create kind of a two-step forward, one-step back as conditions improve.

Yeah, I think we've always said that the margin improvement won't necessarily be a straight line up. but I think we've been getting an adequate number of increases in labor rates and paint material rates to continue to build margin and I expect that to continue to happen but it won't necessarily be a straight line. As historically we've reported, we've seen margin variation quarter to quarter and I think that while we're not projecting that, those conditions still exist in our business could be the case.

That's helpful. And just the last comment for Pat, you know, always have enjoyed our conversations. Best of luck going forward.

Thank you very much, Michael.

If you find that your question has been answered, you may remove yourself from the queue by pressing the star key followed by the digit two. We'll take our next question from the line of Kate McShane with Goldman Sachs.

Good morning, Kate. Good morning. Congratulations again to you, Pat.

Thank you.

Two quick questions, and I'm sorry if I missed this, but just on the quarter to date and the fact that it's under pacing a little bit, what you saw for the first nine months of the year, what you think is some of the driver of that? What is the driver of that?

I guess, you know, are you talking about the EBITDA margin, Kate?

I think you mentioned that same-store sales were trending slightly below that of the first nine months of the year.

Yeah, my comment was that in Q4 to date, quarter to date, which is obviously very early in the quarter, our same-store sales that we've realized are running modestly below what we've experienced on a year-to-date basis. but I think we were also building our sales as we progressed through the year last year.

Yeah, Kate, when you measure the same-store sales, as you know, we basically compared to the prior year and also if you look at the second and third quarter, we had very strong same-store sales growth. So year-to-date it's 19.5 and we are comparing to 19.5 the rate and So this is on the top of what we accomplished in Q4 of last year. So it's going to be still very healthy, but it's not going to be like what we did in Q3, which is 21.9%. But it's going to be still very healthy, very robust.

OK, thank you. And then our second question was just how much of a tailwind was pricing during the quarter, and how should we think about the benefit in the fourth quarter?

Pricing was certainly one of the benefits. I think there are a number of things that are driving same store sales growth. We did comment that we have increased our production capacity, so we've been able to grow our workforce and we're building our TDP program. I think an important milestone was getting the TDP program up to our target number of 400. And while that group doesn't produce initially as that program, as they mature in the program, they do add to our capacity. So a component of it is that there is some price inflation. The labor rate increases that we've seen would be part of that. The other piece is mostly related to parts and some paint materials. We've seen price inflation on paint materials. On the parts and the overall repair complexity, we're seeing noninflationary benefits related to repair complexity, more complex parts, more hours to install those parts. And we're also seeing increases in our scanning and calibration revenue, which is also related to repair complexity.

Thank you.

Thanks, Kate. Thanks, Kate.

We'll take our next question from the line of Steve Hansen with Raymond James.

Steve? Yeah, good morning, guys. Thanks for the time. Maybe I'll just dovetail on your last comment there, Tim. My understanding is the calibration opportunity is one that could be sizable for the industry over time. Do you want to maybe just give us a sense for where you're at in that strategy? Maybe just in ending terms, are we in the second ending here, third ending? I'm just going to get a sense for where you're at and how big of an opportunity do you ultimately think that is as you sort of cast out a couple of years?

We haven't publicly sized the opportunity, Steve, but as vehicles have more ADAS technology on them, and really everything being produced today has ADAS technology. In fact, most vehicles produced over the past several years have had at least some form of ADAS, but that's going to continue to grow. Those systems are more complex. They require both a scan, which we do on virtually every vehicle we pre- and post-scan, and often they require calibration services. So as the car park matures and more ADAS comes into the car park, that segment of our revenue will continue to grow. We did make an investment about a year and a half ago in a mobile service company. Many of these calibrations are complex and it requires different technical skills. We've made an investment in that company and we continue to grow that company to make sure that we're able to capture as much of that service work internally. We do have opportunity to expand that company across our network. It's not easy and it's not quick, but there's absolutely a very good opportunity for us.

Just to compliment Tim, there are two components. The first one is the quality. This really enhances the quality of the repair. So I think that's how we look at it primarily. And the other prism is, I think, what you're talking about is, yeah, this has a significant opportunity. We have not publicly sized, but it's a significant opportunity. And the margins are excellent for providing both scanning and calibration.

No, that's helpful. Thank you. And maybe just to dovetail on that again or follow up, is there a new revenue opportunity in calibration specifically? But if I think about rate increases to go with that, and some other perhaps enhancements to the business. Is it fair to say that same-source sales growth will remain elevated more consistently for a longer period of time? Is that the way to think about that?

I think repair severity is expected to continue to increase because of the vehicle complexity. When you look at repairing a late model car versus a car that's five or six years old, late model cars have more parts to be replaced when it gets into an accident. And there are more calibration operations. But there are also more labor hours. So in terms of using our available labor capacity, those repairs will take more labor capacity. But I do think there's a tailwind on the average cost of repair and that that will continue to increase. I think the other component is that it does require some investments and specialization to service some of these vehicles. Historically, we've talked about aluminum structural damage needing to be, those repairs needing to be in a site that has the equipment and the technician talent and training to do that. As ADAS systems are adopted or are more common in the car park, we'll use our hub and spoke network, this would be true with EVs as well, to move vehicles to where they can be properly fixed and and as a multi-shop operator with good density in the markets in which we operate, we'll have the ability to better leverage our investments and service really all repairs versus having to specialize in a segment of the market.

Okay, great. Appreciate the time. Thanks.

Thanks, Steve.

We'll take our next question from the line of Gary Ho with Desjardins Capital Markets.

Good morning, Gary.

Good morning, Gary. Good morning. Thanks. Just the first question, just on your comments about M&A pace picking up next year, I guess two-part question, you know, are you talking about gentle pickup from this year's levels or something more meaningful? And then secondly, What gives you confidence in ramping M&A back up again? Is it better handle on the supply chain, labor issues? Is it better evaluation?

Just thoughts on that would be helpful. I would say we don't provide annual guidance on the M&A, but we are committed and confident in our five-year goal to double the business by 2025. So you'll have to make your own decision as to when that growth occurs. This year was a light year of growth for us. That was intentional as we focused on the labor issues and kind of the challenges in our core business. We have never stopped our business development team, so we still have been growing this year. We see a very strong pipeline, good opportunity, reasonable valuations. We also have our greenfield-brownfield strategy well in place. And will those take longer to open? We've got a number of those in the pipeline. So you can definitely expect to see incremental growth next year relative to 22 and us tracking toward our 2025 goal.

Okay. And then second question, I guess we've seen a slight pickup in terms of open positions, you and your peers as well. Can we get an update on this? How's retention been and maybe ability to hire in the markets that you operate?

We don't provide specific numbers on that, but I did comment and we do have in our MD&A that we have successfully increased our repair capacity, both with experienced technicians and through our technician development program. But it remains a very competitive market and kind of throughout my comments, and throughout our MD&A, we do reference the continuing wage pressure to both retain staff and to recruit and the need for further increases from our clients to build our workforce, frankly, to be able to properly service them. Length of rental is still at historically high levels and it's difficult for our industry right now to provide the level of service that really vehicle owners need and expect.

Gary, just to complement a couple of things, you're absolutely right. I think we are certainly focused on retention. We are continuously enhancing our retention strategies to improve that. In terms of recruiting, we do have normal channels where we recruit directly technicians, but the other one we explicitly commented about the technician development program, and we've been successful in hitting the 400, doubling the the number from the beginning of the year. Ahead of the schedule initially we commented that we're expecting before the end of second quarter and we were able to accomplish before the reporting period. So that's going to provide substantial capacity for us moving into next year as the graduates come to become technicians.

And just a reminder, our program is an 18-month program and when our apprentices graduate, they're very competent technicians and they build those skills throughout that 18 month period.

Got it, okay. And just last one for me, we saw a spike in used car prices back half last year into early this year and then a pretty dramatic drop. I think we're sitting at roughly 10% lower year over year. Can you give me a quick refresher on how this may benefit or hurt parts of your business if this trend continues?

If used car prices dropped meaningfully, it would increase total loss rates, which would reduce the number of repairable vehicles. I'm sure there are different forecasts out there on it, but the supply of new vehicles has been pretty low for the past few years, which is part of what's been driving used car prices up. That supply is not expected to improve significantly in the near future, so Well, we've seen some decline in the price of used cars. They're still pretty elevated, and that's making more vehicles repairable. As we've been commenting, demand is not really an issue for our business. We have excessive amounts of demand available to us.

Okay, great. That's it for me. Pat, congrats on your retirement again, and best of luck.

Thanks, Gary. Thanks, Gary.

We'll take our next question from the line of Brett Jordan with Jefferies.

Hey, good morning, guys. Could you guys give a bit more detail on the spending for tech development, you know, sort of quantifying it? And then is there a moment where that sort of flips and this 18-month apprentice program becomes productive labor and it, you know, not only is the tech spend lower, but the productivity is higher at some point in 2023?

Yeah, we haven't provided any specific numbers on it, but we view the program as a three-phase program. The first phase is a big investment on our part, both in training and the wage cost of the apprentice. So that's the most expensive phase of it, and it's when they're least productive, maybe not at all productive in the early going, but by the end of phase one, they're at least adding to the productivity. of the shop that they're located in, although not substantially. The second phase would be where their productivity is growing, and they're less impactful on our overall expenses, although we continue to invest in significant training to build their skills, including hands-on training, which is relatively expensive to deliver. The third phase, they're generally producing and likely accretive to margin in most cases. and really preparing to graduate. When they graduate, our experience is that they're not producing at the level of a seasoned technician. They're producing at levels that are very acceptable and we continue to work with them to build their skills in the months after they graduate. It is a fairly expensive program, but it is creating repair capacity for us.

Yep. Generally, like semester one, they're dilutive. Semester two, they're neutral. And semester three, they're accretive. Another important thing is the retention for these TDP graduates is substantially better than normal technicians. So that's another benefit we get. Not only well-qualified technicians, but have a mentor within the company, and retention is much better.

Okay, great. And then a question on your parts margin. You commented it had improved. Is that price mix? What was the driver on the parts margin improvement?

I think there's probably a little bit of supply chain improvement in there and better disciplines around our buying practices. We're still having supply chain challenges, but when they first came up, I think we weren't as well prepared to to make sure we were focusing our buying efforts on trusted suppliers.

And also we're implementing some strategies to enhance the parts margins within the company. And yeah, right now we're not disclosing, but we have introduced some new strategies.

Okay, because I think you were buying more OE parts from non-traditional suppliers in the past year. Is your supply chain, I guess, back to maybe closer to what it was pre-pandemic?

I wouldn't say it's back to where it was pre-pandemic, but we are in better shape with that now, partly because we've learned how to manage it more effectively. But there has been an increase in the OE part mix relative to the aftermarket part mix. Some of that is aftermarket part availability. Some of it is increased repair complexity, and the higher, more complex repairs tend to have fewer, if any, aftermarket options. So we're seeing an increase in the only part mix as a percentage of the total part mix. And that may well continue. Okay, great, thank you. Thanks, Brett. Thanks, Brett.

We'll take our next question from the line of Darrell Young with TD Securities.

Good morning, Darrell. Hey, good morning, everyone. Just following up on Brett's last question there. So in terms of the preferred vendor rebates, Would you be back at a level consistent with 2019 levels, or are you still below those vendor rebate levels for preferred vendors?

Really, I'm not sure where you get the rebate concept. We negotiate our pricing as a discount from list, and when we saw the margin challenges on parts starting a little over a year ago, it was because we were having to buy a higher percentage of our parts from suppliers that we had either a secondary or, in many cases, no relationship with. So our discount from the list price was nominal, and that pressured our overall part margins.

Okay. Yeah, that's great. Sorry. That's what I was referring to. Rebate, wrong word. That's it for me. Thanks.

Thanks, Joe.

Thanks, Darrell.

We'll take our next question from the line of Zachary Evershed with National Bank Financial.

Good morning, Zachary.

Good morning. Good morning, everyone, and congratulations, Pat.

Thank you.

Would there be any value in increasing the size of the technician development program again?

We're going to evaluate that now that we've accomplished this goal. I will say that we're very pleased with what we've accomplished. It does come at a cost, but the industry is woefully short of the number of technicians required to service demand. And so I think that it's important that we evaluate that and continue to look at what's the right thing to do. Certainly as we grow our company, I would expect growth of TDP as we grow our company. But we're going to evaluate, kind of look back on what we've accomplished with where we are now and consider whether it's something that we ought to invest further in.

That makes sense.

We're really, really pleased with the program.

And then in terms of the long-term view on the dynamics between insurers and collision shops, customers are going through This is a question whether views on what premiums are going to do, insurance premiums? What's going to be required to go? whether that'll fundamentally change the nature of the relationship with carriers between collision shops.

I don't think so. I mean, we obviously need our insurance partners and they need us to service their customers. We're going through a difficult period right now with a lack of capacity to properly service them. We're working hard to build that capacity, but the model of direct repair and insurance referral continues to be a really effective way to service vehicle owners with damage. And I don't want to overstate the challenge. Our customer satisfaction levels are still quite good, but they're not as good as they would be if we had all the capacity we needed.

Gotcha. And then finally, we're hearing some pushback from political bodies like insurance commissioners on The rate at which auto premiums are rising, but of course you guys aren't yet at a level where you can hire enough to get the needed capacity. Do you think that'll become an issue going forward that'll put a cap on how high premiums can go?

I mean, insurers have to be able to underwrite and make a profit on what they do. And cars are more expensive, they're more complex, and they are going to cost more to repair. So I think it's It's hard to stop what's happening right now. We can work hard to repair what we can repair to keep costs down and be reasonable with judgment times, and we do that. But the insurance companies have to be profitable, and if they can't get the rate they need after some period of time, they would probably stop writing in a state or certainly up their underwriting standards. They can't go on losing money in their book of business. So I don't think it's a barrier, but The reality is insurance is going to be more expensive for consumers.

And also exactly like the supply and demand. At the end of the day, if there's more demand for our services and the supply, it's going to have an impact. And that's actually what we are trying to convince our insurance partners about the need for price increases so we can get sufficient capacity and process the work. that further enhances the customer satisfaction. So they're all interrelated, but we're well positioned to address our customers' needs.

Great, Kelly, thanks.

Thank you.

Our next question comes from the line of Krista Friesen with CIBC.

Good morning, Krista.

Hi, thanks for taking my question. Just a quick one here. Can you provide us with an update on where your backlog is sitting and I guess just how long it's taking the rate increases you're getting to flow through to new business?

We don't provide, we don't disclose our backlog, although we have said that it's elevated and that's across really all U.S. markets and we are seeing some signs of that in Canada now as well. I think some industry publications have said that the overall backlog for the industry was, Pat, do you recall, was in five weeks or so?

Yeah, five weeks, yeah. Four to five weeks, yeah.

Four to five weeks. So, you know, the industry is fairly backlogged right now, and we wouldn't vary significantly, I don't think, from the industry.

Okay, great. My questions have been answered, and congrats, Pat. Best wishes.

Thank you, Christophe. Thanks, Kristen.

We have a follow-up question from the line of Steve Hansen with Raymond James.

Hello again, Steve. Yeah, thanks, guys. I'm not sure if you can answer this, Tim, but to what degree, if at all, have you been de-emphasizing or dropping certain insurance carriers in your program? You've been pretty vocal about going after price increases, but My understanding is some carriers are more reluctant than others to offer those increases. Do you have an ability to de-emphasize volumes from those laggards? Have you been dropping any carriers specifically, or how do you manage that tension?

The only significant action we've taken was to stop doing business with the large fleet companies, and that was relatively low-margin business. Steve, overall, I'm are very pleased with the increases we've gotten from clients. And there's not a single client that hasn't provided at least one, and in most cases two, and in a few cases three increases over the past 12 months. So our clients are generally being very responsive. There are still gaps, and we've talked about that before. There are fewer gaps today than there were six months ago. So we're going to continue to work those gaps make sure that we maintain productive long-term relationships with our clients.

Okay, that's fair. And then I'll just speak in one last one since I have you. It's just around the M&A environment. You've referred to going after some more locations next year. That sounds logical. How have the multiples been faring in the landscape of late? There's been some obviously high-profile transactions out there. It feels like activity has slowed a little bit. Are you seeing that reflected in multiples at all so far, or do you anticipate it? Thanks.

I think we've said for the past few quarters that our focus on growth is targeted toward greenfield, brownfield developments and single shop. Not that we would avoid a multi-shop transaction, but we see lots of opportunity at good valuations. on the single shop acquisitions and on Greenfield and Brownfield. You would expect, though, that given market conditions and interest rates, that the bidders for assets that were going at levels that may not have made sense to us, you would think that the pricing on that may normalize in these conditions. But we don't have anything specific to report on that. Okay, thanks for the time, guys. Appreciate it.

Thanks, Steve.

Our next question comes from the line of Sabah Khan with RBC Capital.

Good morning, Sabah. Good morning.

Good morning. Just a question just on the way the TDP works, I guess. Sounds like it's sort of an apprenticeship-type model. Do you take people in sort of as they come, sort of one at a time, or is it something like classes that moves through the system? I mean, is it 20 people start at the same time. How does the program work? Or is it just pretty free-flowing, people graduate 18 months after the day one?

It's a very structured program with specific training and experiences required throughout the 18-month period. So for somebody to move from level one to level two, They need to have completed specific training assignments successfully, and they need to demonstrate competency with specific repair tasks. And those trainings and competencies increase as they go through the program. It's a distributed model that's centrally supported. So we have a team of people that work with a mentor. The mentors are formally trained in the program. and there were selective about the mentors. So they need to have the skills and patience to teach. Our mentors are absolutely outstanding. We do this in every market in which we operate in the US. The Canadian system is different. The apprenticeship program in Canada is a different system. It's based in each province. But it's a highly structured, very effective program and we recruit new people into it every single week.

Is there like a concept of a graduating class? I'm just thinking as we think about, you know, the third semester when people start to be acclimated to margins, like, you know, there's a hundred graduates come into the workforce and start adding value. How does it work in terms of the graduation? Is that more structured like classes or?

No, this is based location by location. So when somebody has completed all of the competencies, which should take about 18 months. We might have some people graduate a bit earlier than that. We may have some that drag a little bit later than that. But we would see graduates coming out of the program, really, as it matures, we would see weekly graduates coming from the program across different parts of the country.

Great. Thanks very much.

Thanks, Saba. Thanks, Saba.

It appears there are no further questions at this time, Mr. O'Day. I'd like to turn the conference back to you for any additional or closing remarks.

Thank you, Operator, and thanks to all of you once again for joining our call. We look forward to reporting our fourth quarter and year-end results in March. And Pat, once again, congratulations to you.

Thanks, Tim, and thanks all of you. Have a great day.

Bye-bye.

This does conclude today's call. Thank you for your participation. You may now disconnect.